Shrugging It Off

The market continues to show little concern over the government shutdown. While there doesn't seem to be any progress resolving the stalemate, it looked like shorts were nervous about the possibility of a deal over the weekend and a big open Monday morning. That doesn't seem likely, but it isn't a prudent risk for most traders to take.

I've been writing about how well individual stocks have been acting lately and I want to point it out again as it really is the key to the recent market action. Market players are making money trading individual stocks and don't seem to have much interest in market-timing. Even when there is weakness, the pockets of strength have been impressive. We saw it again today when groups like biotechnology ran up a bit and momentum favorites like Facebook (FB) and Tesla (TSLA) had buying interest all day.

There are obviously major negatives, but market players don't seem to care much and why should they when trading is so good? Breadth today was a bit better than 2:1 positive and you'd be hard pressed to find anything negative other than the action in precious metals.

If the government shutdown drags on it will eventually take a toll on market sentiment, but the potential for a deal at any time is going to provide underlying support. The news seems to suggest that the market should struggle, but it really doesn't seem worried at all.

Have a great weekend. I'll see you on Monday.

Oct. 04, 2013 | 10:43 AM EDT

Ignore the Headlines, Stick to Stocks

I'm focusing on small-cap biotechs.

The opening was soft enough to entice dip-buyers and the indices are now in the green. Breadth is quite healthy at around 2:1 positive and there is good speculative action again, primarily in biotechnology. Big-cap momentum names are showing a little life with Facebook (FB) leading and Tesla (TSLA) holding steady.

Again, it appears that the interest in racking up trading gains is offsetting big-picture worries. Rather than dwell on politicians, traders are beating the bushes looking for action to embrace. They may be short-term orientated but they aren't acting overly concerned about the circus in Washington.

One of the things that I find most striking about the market in the last month or so is how the trading is like the pre-crash days of the early 2000s. We have lots of macro news out there, but it isn't interfering with the trading in good setups. You can focus on individual stocks and not be too concerned about the media hysteria over the latest headlines. It is a refreshing trade and I hope it continues.

I'm focusing on small-cap biotechnology names like Idera Pharmaceuticals (IDRA), Galectin Therapeutics (GALT), Ventrus Biosciences (VTUS) and Pacific Biosciences of California (PACB). My stock of the week, BitAuto (BITA), is making new highs and makes me think that there should be more upside left in the "junk" China names.

Oct. 04, 2013 | 8:03 AM EDT

Keep Your Positions on a Tight Leash

Be very aware that the headlines will jerk the market around.

The bottom line is very simple. You negotiate on this, they will up the ante for the debt ceiling. -- Senator Charles Schumer

It took a few days, but the market finally reacted in a negative manner to the government shutdown. Dip-buyers helped to hold the indices up for a couple days, but they ran out of steam Thursday and the selling pressure picked up. The underlying buying support finally dried up on worries that Republicans and Democrats are both digging in and unlikely to make a quick deal.

There is still much hope that cooler heads will prevail, and that a deal will be struck to solve both the budget issue and the debt-ceiling problem. But the media is full of dire stores about the disaster that awaits should we not have a deal by Oct. 17. The market doesn't seem to be too worried at this point, but if this stalemate drags out, it is going to cause some major problems for the market.

Right now the market is focused on the headlines, and the indices are going to bounce around with each new development. We had a taste of it Thursday when The New York Times posted an article how a deal involving the medical device tax was circulating. That took stocks off the lows of the day, and the market ended up closing in the middle of the intraday range.

I was feeling quite good about the trading action prior to Thursday, the market was doing a great job of ignoring the headlines. Many individual stocks were acting well, and stock-picking was producing excellent results. Unfortunately stock movement is now becoming more correlated as the news headlines take on more importance. Good stock-picking doesn't work nearly as well when the entire market moves in tandem to headlines about politics.

The easy thing to do is to just stand aside until we have greatly clarity, but there is potential for a big move if the politicians suddenly come to their senses and get something done. I see a number of stocks acting well, so I'm going to stick with them and hopefully benefit as we eventually get some clarity.

Thursday was the first day in a while that the high-momentum names showed any real weakness. As I've been writing for a while, there has been a major disconnect between the indices and individual stocks, but yesterday that corrected to some degree and many hot names finally faltered.

I'm not yet convinced that individual stock-picking -- which has worked well -- is now dead. But things are narrowing, and we'll need to be more selective. The market is going to struggle more and more if this political debate drags out, and that means we will need to manage positions closely just in case downside momentum starts to build.

It is trickier market today than it was just a few days ago. The hope for some sort of political resolution is providing support, but danger is building if we don't see some sort of progress. Keep a tight leash on positions, and be aware that the headlines are going to jerk us around.

A slightly positive open is on the way, and there's nothing much new in the political arena. There's no jobs report this morning due to the government shutdown.